COLUMN-Crop meltdown in Canada could force trade diversion in wheat and canola -Braun
Band Karen Braun
FORT COLLINS, Colorado, July 21 (Reuters) – A severe drought has reduced expected spring wheat production in the United States to a three-decade low, and across the border in the Canadian prairies, crops are in equally difficult condition. With little relief in sight, production forecasts are likely to decline and other global export markets will likely have to take over from Canada.
A significant portion of Canada’s annual wheat and canola production is exported, and these products are important on the world stage. The main customer, China, is among those who may need to source elsewhere, and its trade rival, Australia, could be a good candidate to help fill this gap.
The Canadian prairies have experienced drought since the start of the growing season, and with low total precipitation and warm temperatures, this situation has worsened in the past month. Wednesday’s forecast continues to suggest that the hot and dry trend is likely to continue until at least the end of the month.
In Saskatchewan, Canada’s main spring wheat and canola province, spring wheat was rated 25% as good or excellent on July 12, down from 77% a month earlier. Only 18% of canola was good or excellent, compared to 64%.
The second producer, Alberta, suffered the same fate. Spring wheat was 39% good or excellent as of July 13, down from 84% a month earlier, and canola was down from 80% to 33%. The two provinces combine for about 80% of Canadian spring wheat and canola production.
These health trends are similar to those for US spring wheat, but the US harvest has started less well. On Sunday, only 11% of US spring wheat was in good or excellent condition, compared to 27% a month earlier and 45% at the end of May.
Futures markets reacted with Minneapolis wheat MWEU1 this week it hit an 8-1 / 2 year high for the first-month contract of $ 9.44-1 / 2 a bushel. iced canola RSX1 hit an all-time high for the November contract last week at C $ 949 per tonne.
Last week, the US Department of Agriculture assessed the yield of US spring wheat down 37% from the three-year average, which contained strong but stable results. That put the crop estimate at 345 million bushels, the smallest crop since 1988, another terrible drought year.
The US durum crop is expected to reach 37.2 million bushels, about 46% lower than last year and the lowest in 60 years.
However, the USDA Canadian wheat yield is too high for the current situation, standing about 1% above the three-year average. About 94% of the wheat planted in Canada this year is spring wheat or durum, and the latter is in worse shape.
Canadian wheat yields in 1988 were also among the worst on record, falling 37% below the previous three years due to extreme drought and heat. If those losses were to occur this year, Canada’s crop would drop about 11.7 million tonnes (429 million bushels) from the USDA’s last 31.5 million, not counting a possible abandonment of area.
Canada planted significantly less canola in 1988 than today, but 2012 produced the worst relative yields in recent memory during another hot, dry summer. Canola yields fell about 20% from average levels that year, and if the same happened this year, that would wipe out at least 4 million tonnes of the USDA’s current 20.2 million.
The loss of wheat and canola production is significant to the export market, as about half of Canada’s canola crop and about three-quarters of its wheat is exported each year. The country accounts for two-thirds of world canola exports and is the third-largest exporter of wheat, accounting for about 13% of trade.
China’s demand for Canadian wheat in the first nine months of the current marketing year was more than double the three-year average. China was the first recipient of the grain, with 12%. Indonesia and Peru also played an important role with 8% each.
China stranded Canada’s two largest canola handlers two years ago over alleged pest concerns, but exports to China still rebounded from last year. Between August and December 2020, China accounted for 23% of Canada’s canola shipments, behind only the European Union due to crop shortages there. Japan is another major customer for canola.
China’s import requirements for canola and wheat are pale compared to soybeans, for example, but it is still among the top importers. Despite the losses in Canada, China has an alternative route to Australia.
Trade relations between the two countries deteriorated last year when Canberra announced plans to investigate the origins of COVID-19, prompting Beijing to impose high tariffs on Australian products. The 80.5% tariff on barley was so severe that it essentially cut that trade, but China increased its imports of wheat and canola from Australia.
Australia is the second largest exporter of canola and fifth for wheat, and the country’s production levels recently recovered after a series of drought-damaged crops. Additional Australian supply is essential, especially in the Chinese market, but losses expected outside Canada could be historic.
Canada also does not have an excess of canola on its reserves, as oilseed stocks at the end of 2020 were down 24% on the year, hitting an eight-year low to date. All wheat stocks as of December 31 fell 4% on the year, reaching a three-year low.
(Edited by Marguerita Choy)
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